SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): August 21, 2002
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Advanced Photonix, Inc.
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(Exact Name of Registrant as specified in its Charter)
Delaware 1-11056 33-0325836
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1240 Avenida Acaso, Camarillo, California 93012
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(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number,
including area code: (805) 987-0146
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Item 2. Acquisition or Disposition of Assets.
(a) On August 21, 2002, Silicon Sensors, Inc., a wholly owned subsidiary of
Advanced Photonix, Inc. ("API"), purchased the business and substantially all of
the assets of Silicon Sensors, L.L.C., a privately owned manufacturer of
optoelectric semiconductor based components, hybrid assemblies and other
proprietary solid-state light and radiation detection devises. The purchase
price was $1,700,000 in cash, plus the assumption of certain of Seller's
liabilities, mainly accounts payable and accrued liabilities valued at
approximately $264,000. This purchase price was determined through arm's-length
negotiations between the parties. API used internally generated cash for this
purchase.
(b) The principal assets owned by Seller are machinery and equipment used in the
manufacture and assembly of optoelectric semiconductor based components, hybrid
assemblies and other proprietary solid-state light and radiation detection
devises. API intends to continue to use these assets for these purposes. Silicon
Sensors is based on Dodgeville, Wisconsin.
Item 7. Financial Statements and Exhibits
(a) Financial Statements
--------------------
(i) Financial Statements of Silicon Sensors, L.L.C. for the fiscal years ended
September 30, 2001 and September 30, 2000 audited by Virchow, Krause &
Company, LLP, Independent Certified Public Accountants.
(ii) Unaudited Financial Statements of Silicon Sensors, L.L.C. for the ten
months ended July 31, 2002.
(b) Pro Forma Information
---------------------
Pro forma financial information relating to the acquired business will be
filed by amendment.
(c) Exhibits
--------
Item Ref
in 17 CFR Exhibit
229.601(b) Exhibit Number
---------- ------- --------
2 Asset Purchase Agreement dated as of August 21, 2002, by 2.1
and among API, Silicon Systems, Inc., Silicon Systems,
L.L.C., Jack L. McCook and Paul L. Ludwig
10 Employment Agreement dated as of August 21, 2002 by and 10.1
between API and Paul D. Ludwig
23 Consent of Virchow, Krause & Company, LLP, Independent 23.1
Certified Public Accountants, to the filing of the Financial
Statements of Silicon Systems, L.L.C. included herein
[Item 7.(a)(i)]
INDEPENDENT AUDITORS' REPORT
Members
Silicon Sensors, LLC
Dodgeville, Wisconsin
We have audited the accompanying balance sheets of Silicon Sensors, LLC as of
September 30, 2001 and 2000 and the related statements of income and members'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Silicon Sensors, LLC as of
September 30, 2001 and 2000 and the results of its operations and cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information provided, as
identified in the table of contents, is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Virchow, Krause & Company, LLP
Madison, Wisconsin
October 24, 2001
SILICON SENSORS, LLC
BALANCE SHEETS
September 30, 2001 and 2000
ASSETS 2001 2000
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CURRENT ASSETS
Cash and cash equivalents $ 62,716 $ 45,632
Accounts receivable 421,807 526,866
Inventories 780,510 719,600
Member advances 52,469 42,300
Other current assets 37,067 25,379
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Total Current Assets 1,354,569 1,359,777
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EQUIPMENT AND FURNISHINGS
Machinery and equipment 1,223,085 1,055,471
Office furnishings 221,911 192,825
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1,444,996 1,248,296
Less: Accumulated depreciation (795,914) (578,794)
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Net Equipment and Furnishings 649,082 669,502
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OTHER ASSETS, NET
Non-compete agreement 5,210 83,961
Other 6,000 8,988
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Total Other Assets 11,210 92,949
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TOTAL ASSETS $ 2,014,861 $ 2,122,228
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LIABILITIES AND MEMBERS' EQUITY
-------------------------------
CURRENT LIABILITIES
Accounts payable $ 122,303 $ 166,351
Accrued expenses 178,029 142,859
Current maturities of debt 387,971 505,473
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Total Current Liabilities 688,302 814,683
LONG-TERM LIABILITIES 711,686 773,377
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Total Liabilities 1,399,988 1,588,060
MEMBERS' EQUITY 614,873 534,168
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TOTAL LIABILITIES AND MEMBERS' EQUITY $ 2,014,861 $ 2,122,228
===================== ======================
See accompanying notes to financial statements.
SILICON SENSORS, LLC
STATEMENTS OF INCOME AND MEMBERS' EQUITY
Years Ended September 30, 2001 and 2000
2001 2000
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NET SALES $ 4,377,348 $ 3,559,471
COST OF GOODS SOLD 3,023,849 2,290,194
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Gross Profit 1,353,499 1,269,277
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OPERATING EXPENSES
Selling 321,845 341,021
Engineering 242,971 301,579
Administrative 462,302 474,334
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Total Operating Expenses 1,027,118 1,116,934
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Income from Operations 326,381 152,343
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OTHER INCOME (EXPENSE)
Interest expense (90,146) (104,527)
Other income 5,521 1,132
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Net Other Expense (84,625) (103,395)
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Income Before Cumulative Effect 241,756 48,948
Cumulative effect of a change in accounting principle -- (38,317)
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NET INCOME $ 241,756 $ 10,631
===================== ======================
MEMBERS' EQUITY - Beginning of Year $ 534,168 $ 566,460
Net income 241,756 10,631
Members' distributions (161,051) (42,923)
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MEMBERS' EQUITY - END OF YEAR $ 614,873 $ 534,168
===================== ======================
See accompanying notes to financial statements.
SILICON SENSORS, LLC
STATEMENTS OF CASH FLOWS
Years Ended September 30, 2001 and 2000
2001 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 4,487,930 $ 3,478,285
Cash paid to suppliers and employees (3,805,583) (3,245,028)
Interest paid (94,471) (105,653)
Income taxes received (paid) (33,847) 25,632
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Net Cash Flows From Operating Activities 554,029 153,236
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (88,316) (210,904)
Proceeds from sale of assets -- 13,198
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Net Cash Flows from Investing Activities (88,316) (197,706)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net change in revolving credit facility (160,000) 185,000
Payments on long-term debt (167,802) (153,817)
Proceeds from long-term debt 40,224 15,276
Members' distributions (161,051) (42,923)
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Net Cash Flows From Financing Activities (448,629) 3,536
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Net Change in Cash and Cash Equivalents 17,084 (40,934)
CASH AND CASH EQUIVALENTS - Beginning of Year 45,632 86,566
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CASH AND CASH EQUIVALENTS - End of Year $ 62,716 $ 45,632
=================== =================
RECONCILIATION OF NET INCOME TO NET CASH
FLOWS FROM OPERATING ACTIVITIES
Net income $ 241,756 $ 10,631
Adjustments to reconcile net income to net cash
flows from operating activities
Noncash items included in income
Depreciation 295,871 261,917
Nonoperational items included in income
Loss (gain) on asset disposal -- (1,082)
Change in accounting principle -- 38,317
Changes in noncash components of working capital
Accounts receivable 105,059 (98,906)
Other receivables (7,182) --
Inventories (60,909) (172,519)
Other current assets (11,688) 18,812
Accounts payable and other current liabilities (8,878) 96,066
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NET CASH FLOWS FROM OPERATING ACTIVITIES $ 554,029 $ 153,236
=================== =================
See accompanying notes to financial statements.
SILICON SENSORS, LLC
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 and 2000
NOTE 1 - ORGANIZATION AND BUSINESS
Nature of Operations
--------------------
Silicon Sensors, LLC, a limited liability company, manufactures silicon
photodiodes and optical assemblies. Sales are to customers in the United States,
Europe and Japan.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
-------------------------
The company defines cash and cash equivalents as highly liquid, short-term
investments with a maturity at the date of acquisition of three months or less.
Accounts Receivable
-------------------
The company grants credit to customers, most of which are located in the United
States, Europe and Japan. No allowance for doubtful accounts is considered
necessary.
Inventories
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Inventories are valued at lower of cost using the first-in, first-out (FIFO)
method or market. Work in process includes the cost of materials, labor, and
overhead.
Equipment and Furnishings
-------------------------
Equipment and furnishings are recorded at cost. Depreciation is provided using
the straight-line method. Expenditures for maintenance and repairs are expensed
as incurred. Estimated useful lives are as follows:
Years
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Machinery and equipment 2 -10
Office furnishings 3 - 7
Other Assets, Net
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Organization costs and amounts paid to the former owner of the business under a
non-compete agreement are being amortized using the straight-line method over
five years, commencing November 4, 1996. Accumulated amortization as of
September 30, 2001 is $344,790. (See Note 12)
Income Taxes
------------
The company is not a tax paying entity; thus there is no provision for federal
or state income taxes recorded in the financial statements. The income of the
company is allocated to the income interest members in accordance with the terms
of the company's operating agreement and reported on their respective income tax
returns.
Because the company has a September 30 year end date, it is required to deposit,
with the Internal Revenue Service, an amount equal to 25% of the prior year
taxable income extended times the maximum federal income tax rate. Other current
assets at September 30, 2001, include $33,847 of a prepaid income tax deposit.
Estimates
---------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification
----------------
For comparability, certain 2000 amounts have been reclassified to conform with
classifications adopted in 2001.
NOTE 3 - INVENTORIES
Inventories consist of the following at September 30:
2001 2000
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Raw materials $607,151 $545,194
Work in process 77,831 68,569
Finished goods 95,528 105,837
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Total Inventories $780,510 $719,600
NOTE 4 - DEBT AND LONG-TERM LIABILITIES
Notes payable and obligations at September 30 consist of the following:
2001 2000
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Revolving Credit Facility - Prime $ 175,000 $ 335,000
Bank Term Loan - Prime less 1/2% 216,686 316,682
Installment Note 53,781 15,276
Member Loan - Prime 65,000 65,000
Subordinated Debt - 7.18% 436,074 473,575
Deferred Payment-Interest Imputed at 9% 153,116 73,316
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Total $1,099,657 $1,278,849
Less: Current portion (387,971) (505,473)
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Long-Term Portion $ 711,686 $ 773,376
============ ============
The company has a loan and security agreement with a bank which provides for a
revolving credit facility and a term loan. Borrowings under each arrangement are
secured by substantially all of the assets of the company and personally
guaranteed up to $350,000 by the income interest members of the company. The
agreements contain covenants with respect to the maintenance of certain
financial ratios, additional borrowings, and capital expenditures.
The revolving credit facility matured October 1, 2000 and was renewed for a four
month term as of that date. Borrowings under the agreement are limited to an
amount equal to 80% of eligible accounts receivable plus 50% of eligible
inventories, with a maximum amount of $1,000,000, and bear interest at the
bank's prime rate.
The term loan is payable in monthly installments of $8,333 plus interest over
seven years.
Installment note is payable in monthly installments over 5 years, interest at
3%.
Subordinated debt was negotiated in connection with the purchase of the business
and is payable to the former owner (who is also a member of the company). The
note is payable in quarterly installments of $17,627 through October, 2003 with
a $341,272 balloon payment due November 4, 2003. The note is collateralized by
substantially all of the assets of the company and is personally guaranteed by
one of the income interest members. The note and any claims against the
collateral are subordinated to amounts due and security interests under the bank
loan and security agreement. Claims against the personal guarantee are also
limited as long as there are balances outstanding under the bank loans.
Deferred payment represents an amount payable to the former owner of the
business (who is also a member of the company) under an earn-out arrangement
contained in the purchase agreement discounted at 9%. For each of the five
twelve month periods ending October 31, 2001, the company is obligated to pay to
the former owner an amount equal to 10% of sales for the period in excess of
$3,000,000. Annual amounts earned under the arrangement are payable in three
equal annual installments commencing in January of the succeeding year. The
maximum amount which can be earned under this arrangement over the five-year
period is $450,000.
Maturities on long-term liabilities for years ending after September 30, 2001
are as follows:
2002 $ 387,971
2003 276,124
2004 414,230
2005 11,481
2006 9,851
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Total $1,099,657
NOTE 5 - MEMBERS' EQUITY
The former owner of the business owns a 10% liquidation and voting interest in
the company. Under the terms of the company's operating agreement, after
November 1, 2001, this member may put his membership interest to the company for
an amount equal to the greater of $350,000 or 10% of the then fair market value
of the company. Upon the earlier to occur of the death of this member or the
transfer of his interest, the company may, at its option, redeem such member's
interest under equivalent terms. In either event, the amount payable is to be
first reduced by any amounts paid, up to $350,000, to such member under the
earn-out arrangement. (See Note 4)
NOTE 6 - PROFIT SHARING PLAN
The company has a qualified profit sharing plan with a 401(K) deferred
compensation provision. The Plan covers all full-time employees who qualify as
to age and length of service. Company contributions to the plan are made at the
discretion of the managing members. Employees may also elect to make deferred
income contributions to the Plan. There is no company matching requirement for
such employee contributions. Profit sharing expense for the years ended
September 30, 2001 and 2000 was $40,020 and $36,872.
NOTE 7 - COMMITMENTS
Operating Leases
----------------
The company leases its office and plant facility from a member of the business
under a five year operating lease, which commenced November 4, 1996, at a
monthly rental rate of $5,000. The lease provides two five-year renewal options
and a right of first refusal to purchase the facility and certain adjacent land
owned by the lessor. The company exercised a five-year renewal option during
2001. However, the company has the option to terminate the lease at any time
after April 30, 2003.
Minimum future lease payments on this lease at September 30, 2001 are as
follows:
2002 $ 66,600
2003 39,200
--------
Total $105,800
Rent expense was $60,000 for the years ended September 30, 2001 and 2000. The
company is responsible for the payment of property taxes, insurance, maintenance
and utilities.
Effective December 13, 1999 the company entered into an automobile lease which
extends to November 13, 2002, at a rate of $750 per month. Lease expense for the
years ended September 30, 2001 and 2000 was $9,000 and $7,500, respectively.
NOTE 8 - RELATED PARTY TRANSACTIONS
Interest paid to members under the subordinated debt agreement and member loan
totaled $41,837 for the year ended September 30, 2001 and $41,056 for the year
ended September 30, 2000.
The company has a member advance of $52,300 and $41,000 at September 30, 2001
and 2000, respectively. The amount is classified as a current asset as no
written agreement exists.
NOTE 9 - OTHER MATTERS
Major Customers
---------------
A substantial portion of the company's sales are to two customers. Sales to
these customers totaled $2,068,000 during the year ended September 30, 2001 and
$749,000 during the year ended September 30, 2000.
Major Vendors
-------------
Materials purchased from two major vendors totaled $244,000 during the year
ended September 30, 2001 and $197,000 during the year ended September 30, 2000.
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
A non-cash transaction recorded during the year ended September 30, 2001
resulted from the increase in the deferred payment under the earn-out
arrangement of $110,899, which amount has been allocated to the cost of the
assets acquired upon the purchase of the business.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
The company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The company has not experienced any losses in
such accounts. The company believes it is not exposed to any significant credit
risk.
NOTE 12 - CHANGE IN ACCOUNTING PRINCIPLE
During the year ended September 30, 2000, the company adopted SOP 98-5 Reporting
on Costs of Start-up Activities, which requires start-up costs (including
organization costs) to be expensed as incurred. The company wrote off
organizational expenses of $38,317 as a result of this change.
[Item 7.(a)(ii)]
SILICON SENSORS LLC
Balance Sheet
(UNAUDITED)
At July 31st
ASSETS ----------------------------------------
------ 2002 2001
CURRENT ASSETS ------------------ -----------------
Cash $ 7,043 $ 26,352
Accounts Receivable 328,156 475,484
Inventory 505,115 762,199
Other Current Assets 10,202 13,984
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TOTAL CURRENT ASSETS 850,516 1,278,019
EQUIPMENT & FURNISHINGS
Equipment 1,242,443 1,105,971
Leasehold Improvements 7,746 12,245
Office Furnishings 222,276 208,083
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1,472,465 1,326,299
Less Accumulated Depreciation (948,360) (758,747)
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Net Equipment & Furnishings 524,105 567,552
OTHER ASSETS 6,000 24,335
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TOTAL ASSETS $ 1,380,621 $ 1,869,906
================== =================
LIABILITIES AND EQUITY
----------------------
CURRENT LIABILITIES
Accounts Payable $ 127,921 $ 169,077
Accrued Expenses 136,354 115,431
Current Maturities on Debt 49,713 137,500
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TOTAL CURRENT LIABILITIES 313,988 422,008
LONG TERM LIABILITIES 853,482 796,580
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Total Liabilities 1,167,470 1,218,588
MEMBERS' EQUITY 213,151 651,318
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TOTAL LIABILITIES & EQUITY $ 1,380,621 $ 1,869,906
================== =================
SILICON SENSORS LLC
Income Statement
(UNAUDITED)
For the Ten Months Ended July 31, 2002
YEAR TO DATE
----------------------------------------
2002 2001
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SALES $ 2,482,907 $ 3,835,967
COST OF GOODS SOLD 1,982,667 2,646,277
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GROSS PROFIT 500,240 1,189,690
OPERATING EXPENSES
Selling 262,350 275,775
Engineering 176,203 205,764
Administration 346,947 387,754
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INCOME FROM OPERATIONS (285,260) 320,398
OTHER INCOME/(EXPENSE) 38,789 4,561
INTEREST EXPENSE (56,824) (78,947)
ACQUISITION COSTS (113,542) -
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NET INCOME (LOSS) $ (416,836) $ 246,011
================== =================
SILICON SENSORS LLC
Statements of Cash Flows
(UNAUDITED)
For the Ten Months Ended July 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from Customers $ 2,619,030
Cash paid to suppliers and employees (2,429,949)
Interest paid (62,346)
Income taxes received (paid) 33,847
----------------------
Net Cash Flows From Operating Activities 160,582
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (35,106)
Proceeds from Sale of Fixed Asset 200
----------------------
Net Cash Flows From Investing Activities (34,906)
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in revolving credit facility 125,000
Payments on long-term debt (321,462)
Proceeds from long-term debt -
Members' Equity 125,000
Members' Distributions (109,886)
----------------------
Net Cash Flows From Financing Activities (181,348)
----------------------
Net Change in Cash and Cash Equivalents (55,672)
CASH AND CASH EQUIVALENTS - Beginning of Year 62,715
----------------------
CASH AND CASH EQUIVALENTS - End of Year $ 7,043
======================
RECONCILIATION OF NET INCOME TO NET CASH FLOWS
FROM OPERATING ACTIVITIES
Net Income (Loss) $ (416,836)
Adjustments to reconcile net income
to net cash flows from operating activities
Noncash items included in income
Depreciation 162,847
Nonoperational items included in income
Loss (gain) on asset disposal 2,247
Changes in noncash components of working capital
Accounts receivable 136,124
Other receivables 10,469
Inventories 275,395
Other current assets 26,392
Accounts payable and other current liabilities (36,056)
----------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 160,582
======================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED PHOTONIX, INC.
By: /s/ Brock Koren
------------------------
Brock Koren, President and Chief
Executive Officer
Dated: September 3, 2002